Most married couples have a dream for their golden years. It may involve travel, dining out, pursuing hobbies, spending time enjoying friends and family. Those are the dreams toward which people work and save. Many people manage to accumulate a substantial nest egg with these goals in mind. But if one spouse needs nursing home care, those assets—and the dreams they were intended to support—can evaporate.
You may not be able to eliminate the need for long-term care, but there are measures you can take to protect your assets from the nursing home and allow a healthy spouse to live comfortably in the community while the other spouse gets the care they need. Caring for a loved one should not cost the savings of a lifetime. In fact with proper planning in most married couple situations they can protect most if not all of their assets and qualify for Medicaid, and it is not too good to be true.
Medicare, Medicaid, and Nursing Homes
The median monthly cost of a private nursing home room in Michigan is $10,870 for 2024. Certainly costs will continue to rise. A semi-private room is less expensive, but not by much. Few families, even those that have saved carefully, can afford to pay those rates out of pocket for very long—especially if one spouse still needs to live outside the nursing home.
Many people are surprised to learn that Medicare, the health insurance for which all Americans over 65 are eligible, does not cover nursing home care. Medicare was designed to provide services for one to get better by rehabilitation and with proper coverage one can possibly achieve 100 days of coverage. Most people can qualify for Medicaid to pay for nursing home care. However, there are certain requirements. For one to be Medicaid eligible they need to be medically and financially qualified.
Why not just put your assets in your children’s name? There are a number of reasons that that is a terrible idea, but the main one is that Medicaid has a five-year “look-back” period. If it appears that an applicant has transferred assets, even to family members, for less than their fair market value during that period, the applicant’s eligibility for benefits will be delayed.
It’s not that the government wants people to have to impoverish themselves and their families in order to get the care they need. The look-back period exists to prevent fraud. There are a number of legal ways to preserve assets for the spouse who is not in the nursing home (often called “the community spouse”) and other heirs.
Options for Protecting Assets from the Nursing Home
There are a number of ways to use your assets to protect yourself and your spouse, while still allowing one of you to qualify for needed Medicaid benefits. This is true even if you are in “crisis planning” mode, but you can do more to conserve your assets if you plan well before care is needed. Here are some Medicaid planning options and strategies.
Medicaid Spousal Protection Rules
When a married couple is confronted with one spouse in a nursing home and needs to qualify for Medicaid, federal law provides special protection so that the healthier spouse (known as the “community spouse” or “well spouse”) is not impoverished. Specifically, under federal and Michigan law, in addition to what a single person can keep, the community spouse is entitled to keep the home regardless of its equity value, provided they are residing there.
This is in addition to the community spouse’s protected resource (asset) allowance. This resource allowance, though extremely complicated, can be generally explained as the community spouse being able to keep 50% of the countable assets, up to approximately $154,140, with a minimum of $30,828. This figure is calculated by using the date the ill spouse first received 30 days of continuous care, which is the earlier of a hospital or rehab stay. This is commonly referred to as the "snapshot date.”
Typically, the snapshot date is the last night the ill spouse slept at home. All the assets over-and- above the protected resource allowance are “at risk". The at-risk assets must be spent down, converted, gifted (but there is a five year look back and penalties!), protected by a court order, placed in a special trust or annuitized with the community spouse’s name on the check.
There is also a Monthly Maintenance Needs Allowance (MMNA), which lets the community spouse keep a portion of the institutionalized spouse’s income if their own income is below a certain level.
Trust for the Sole Benefit of the Community Spouse and Medicaid Compliant Annuities
Usually, the Trust for the Sole Benefit of the Community Spouse (SBO) is the primary method used to protect married couples’ assets. Example: a married couple has a home, plus $450,000 in assets, a car and funeral planning. As we know, the protected spousal allowance is about $150,000. Therefore, $300,000 in assets above the allowance is at risk (remember, the home, car and funeral planning are all protected already).
It is well settled law through the Michigan courts to permit the community spouse to create a very special trust for the sole benefit of the community spouse (a “Sole Benefit Trust”) and transfer the at-risk $350,000 without any taxable consequences into that Sole Benefit Trust. The Sole Benefit Trust must pay only to the well spouse over their life expectancy or less.
If these requirements are met, the Sole Benefit Trust is NOT A COUNTABLE ASSET for determining Medicaid eligibility. Frankly, this technique is not a taxable event, uses the community spouse’s social security number and can be used with any amount of assets.
The only disadvantage of the Sole Benefit Trust is that it does not protect income and, in some circumstances where there are IRA’s, those IRA’s usually had to be liquidated, which is a taxable event. However, we at BRMMLAW took the Sole Benefit strategy to the next level, and rather than the well spouse cashing out the ill spouse’s or their own IRA or other retirement assets, these assets are then annuitized. The monthly check is paid to the well spouse with their name on the check. Since the annuity was for the sole benefit of the well spouse, Medicaid has accepted this strategy. The monthly check is taxable income which after payment of taxes can be re-banked and regrown. I know this seems too good to be true, but federal law extended protections to the community spouse.
Irrevocable Trusts
Placing assets in an irrevocable trust removes those assets from the grantor’s ownership and control—and therefore makes those assets not countable for Medicaid eligibility purposes. There are a number of types of irrevocable trusts that can be used for this purpose, but remember that contributions may be subject to the Medicaid five-year look-back period and are fraught with problems. For many reasons this strategy is rarely used..
Life Estate/Lady Bird Deed
Creating a life estate allows the couple to transfer ownership of their home but keep the right to live there for the rest of their lives. A Lady Bird deed is a type of enhanced life estate deed; it is available only in a few states, which include both Michigan and Florida. These strategies, used properly, can protect property from Medicaid estate recovery after the couple’s deaths, and is a very common strategy..
Qualified Income Trusts/Miller Trusts
In some states, individuals with monthly income above the amount allowed by Medicaid can still qualify for benefits if the excess income is placed into a qualified income trust (QIT), also known as a Miller Trust. Miller trusts are permitted in Florida, but not in Michigan.
Strategic Spending
Even if a couple is required to “spend down” assets in order for one spouse to be eligible for Medicaid, they can do so strategically. The idea is to convert countable or non-exempt assets into exempt assets. For instance, using cash to prepay for funeral expenses, pay off debts, or make home improvements can remove those amounts from countable assets. Replacing an older car with a newer one is also an option. Speak to a Medicaid planning attorney to discuss more ways to spend strategically.
Plan Ahead With an Experienced Medicaid Planning Attorney
Every court in the land has stated the Medicaid program is governed by a complex web of interlocking
statutes, as well as regulations and interpretive documents published by state and federal agencies, and
is extremely difficult to understand, to say the least. Hence, it is imperative that anyone or any family
dealing with health challenges, or anyone who wants to grow old one day, consult with an experienced
and well-credentialed Elder Law attorney, such as the attorneys at BRMM. The knowledgeable Medicaid planning attorneys at Barron, Rosenberg, Mayoras & Mayoras work with clients who need to qualify for Medicaid help on an urgent basis, and those who are planning ahead to protect themselves and their assets. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.